The Psychology of Money

Front Cover of the book ‘The Psychology of Money’. It showcases a top down horizontal cross-section of a human brain in black and white with the ridges made to look like a meandering maze hidden within the brain. On closer inspection the ridges and walls of the maze seem to made of several American currency bills.
Audio book cover for ‘The Psychology of Money’

Overall tone and topic of the book.

“Doing well with money isn’t necessarily about what you know. It’s about how you behave. And behaviour can be hard to teach.”

  • The role luck and risk play in our financial decisions and life. And how upbringing and being born in different time-periods shapes a person’s attitude towards both.
  • Why compounding is considered the seventh wonder of the world but is seldom visited by many on their financial journey. What makes it so counterintuitive?
  • What’s the difference between getting wealthy and staying wealthy? Is owning a flashy car a marker for poverty or class and wealth?
  • The ultimate question: Why do people need and want so much money?
  • And on popular request : How do I become a millionaire?

About the author

Anyway, why this book? And why now?

Which Chapter did I like the most?

  • No one’s crazy
  1. {spoiler}
    We all think we understand how the world works but we’ve all only experienced a tiny sliver of it. We’ve all had different experiences with money and have grown up in varying environments and circumstances. People are as varied as their experiences and their stories are, this is why we cannot agree on how to utilise and spend money. For example, the children of bankers approach risk from a much different angle than the children who grew up during a recession. Studying history could make you feel like you understand it and could have even foreseen things. But as they say, hindsight is always 20/20. And that’s exactly what history is-hindsight. It serves us well to remember that people are mostly rational and make decisions based on the information they had with them at the time. Very few people make decisions looking at a spreadsheet. Most pivotal decisions are made at dinner tables and company meetings while staring into the faces of near and dear ones. The faces of people who count on you and your decisions for their income and livelihood. Most pivotal decisions are taken in such places of personal importance where ego, pride, struggle and story mush together into a narrative that makes sense to us, to them. This is why it is humbling to remember that everyone is trying their best out there. No one is crazy.
  • Man in the car paradox.
  1. {spoiler}
    When you see an expensive luxury car on the road. How often do you see who’s behind the wheel? We judge wealth on these external materialistic markers. When in actuality these markers are a sign of poverty. You cannot know how much money the luxury car owner possess but you do know exactly how much they are poorer now by just googling the cost of the vehicle. Never before did I see things this way.
  2. There are so many more eye-opening moments that if I mentioned them all it would just be plagiarism. Which is exactly how I got through my undergraduate. Thank you… Wikipedia. So yeah, for more, buy the book.

Most moving/ Mind blowing chapter.

  • The seduction of pessimism.
  1. Very relevant for the Indian mentality. You absolutely must read his definition of an optimist. It is so logically sound that it would make your pseudo-existentialist thinker friends dumbstruck. And at a loss for words.
    Also, existentialism is about justifying and deriving meaning out of life by defining it for yourself. Essentially you give your life its meaning. Stop using it to justify your laziness, dickwad.
  • Room for Error
  1. {spoiler}
    The world is governed by odds, not certainties. The odds of the train being on time of you waking up on time, of traffic being easy on the way to work. We all account for these odds not being favourable when travelling. If we don’t on those days we are gambling with time. Every city has its own buffer travel time. The city where I live, Bangalore has a buffer time of 40 min to an hour. This ensures you reach on time to wherever you want or need to be. You could call this buffer time a margin for error. The point of a margin or error is so that you render a forecast unnecessary. You don’t need to constantly check traffic density on google maps towards work every morning if you know that it’s going to take you an hour in traffic to get there.
    Similarly looking at the favourable odds we tend to not notice the gigantic downsides to them. Housel terms this as ‘optimism bias in risk taking’ and refers to it as a cousin to ‘room for error’. Equating it to “Russian roulette should statistically work syndrome”. Think about it in Russian roulette, the odds are technically in your favour. However, the downside is so great that it doesn’t make any sense to play at all.
  • Wealth is what you don’t see.
  1. {spoiler}
    Similar to the man in the luxury car scenario. The difference between being wealthy and being rich is being comfortable with living within one’s means whereas the other is simply an income statement. If you followed all the lottery ticket winners in the United States then roughly 70 per cent of them will either spend or lose all of their winnings within 5 years. It doesn’t matter whether they win $500 million or $1 million. Life after winning the lottery may not stay glamorous forever. Money does not equal wealth.
    Wealth is the vacation you never took, the lavish meals and parties you never threw, the luxury brands and vehicles you never purchased, the unreasonably large house you didn’t buy, the ability to say no now. So that you may say, yes to everything later. Wealth is what you don’t see.

New words and sayings that I learnt.

  1. intense happiness.
  2. the ability to find appropriate expression for one’s thoughts.

Are the contents relevant to me and my surroundings?

My favourite quote in this book and why I loved it.

Who would I recommend this book for?

Do I wish I had read this book sooner or later?

  • Everyone Believes It; Most Will Be Wrong Morgan Housel
  • 50 Years in the Making

So invest like an optimist but save like a pessimist. Work with your nature and not against it. Recognise your biases and plan with them in mind. Don’t try to fight it, instead plan around it. And remember, no one’s crazy.

Bubbles are not the result of high evaluations but the result of shortened timelines.



I use Medium as a sounding board for the various ideas and observations I come across. And to occasionally vent about my long list of pending DIY projects.

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Abhijay Arjunan

I use Medium as a sounding board for the various ideas and observations I come across. And to occasionally vent about my long list of pending DIY projects.